What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-25 compared with 2025-02-26 · 190 added, 150 removed, 315 unchanged (52% of the section changed)

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A discussion regarding our financial condition and results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in Item 7.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 8, 2024.

The Honest Company, Inc.

(“Honest” and, together with its consolidated subsidiaries, the “Company,” “we,” “us” and “our”) is a personal care company dedicated to creating cleanly-formulated and sustainably-designed products.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (“SEC”) on February 26, 2025.

Founded in 2012, The Honest Company (the “Company,” or “Honest,” or which may also be referred to as “we,” “us” or “our”) is a personal care company dedicated to creating cleanly-formulated and sustainably-designed products for everyone from babies to adults.

By combining thoughtful design with science-based innovation, we deliver personal care products for everyone from babies to adults, spanning categories across wipes, personal care, diapers, and beauty.

Our commitment to our core values, continual innovation and engaging our community has differentiated and elevated our brand and our products.

Since our launch in 2012, we have been dedicated to developing clean, sustainable, effective and thoughtfully-designed products.

By doing so with transparency, we have cultivated deep trust around what matters most to our consumers:

Since our launch, we have cultivated deep trust around what matters most to our consumers:

their health, their families and their homes.

We are an omnichannel brand, ensuring our products are available wherever our consumers shop.

Our differentiated platform positions us for continued growth through our trusted brand, award-winning multi-category product offerings, and omnichannel availability.

Our integrated multi-category product portfolio is intentionally designed to serve our consumers every day, at every age and through every life stage.

We believe this drives loyalty, increases our consumer wallet share and generates attractive consumer lifetime value.

We believe that our consumers are modern, aspirational and style-forward and that they seek out high quality, effective and thoughtfully-designed products.

We believe that they are very choiceful about the products that they purchase and use.

And, we believe they are enthusiastic ambassadors for brands they trust.

As purpose-driven consumers, they transcend any one demographic, spanning gender, age, geography, ethnicity and household income.

Honest consumers are often young, mobile-centric and digitally-inclined.

We build relationships with these consumers through a disruptive digital marketing strategy that engages them with digital content.

Our direct connection with our community enables us to understand what consumers’ needs are and inspires our product innovation pipeline, generating a significant competitive advantage over more traditional consumer packaged goods (“CPG”) peers.

Our omnichannel presence seeks to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and availability.

Since our launch, we have built a well-integrated omnichannel presence by expanding our product availability, including the launch of strategic partnerships with Target, Amazon and Walmart in 2014, 2017 and 2022, respectively.

We maintain direct relationships with our consumers via our flagship digital platform, Honest.com, which allows us to influence brand experience and better understand consumer preferences and behavior.

We also increase the availability of our products to more consumers through third-party ecommerce sites, our leading retailers and their websites.

Our integrated omnichannel presence provides meaningful benefits to our consumers which we believe are not easily replicated by our competitors.

Transformation Initiative

We seek to meet consumers wherever they want to shop, balancing deep consumer connection with broad convenience and availability.

We believe our distribution strategy positions us for continued growth through our trusted brand and award-winning multi-category product offering.

The Honest Standard, the Company’s rigorous set of guiding principles that shape every step of product innovation and development, reflects Honest’s ongoing dedication to safety, transparency and integrity.

As a leader in clean and sustainable products, Honest continues to set a new standard for clean formulations, bringing joy to a community that seeks authenticity, transparency and efficacy in everyday essentials.

Honest products are available nationwide at major retailers, including Amazon, Target and Walmart.

Effective December 31, 2025, we have transitioned away from Honest.com as a shipping and fulfillment channel, while maintaining Honest.com as a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase through our leading retailers and their websites, and third-party ecommerce sites.

Transformation 2.0:

Powering Honest Growth

In 2023, we executed a broad-based Transformation Initiative designed to build the Honest brand and drive growth in higher-margin areas of the portfolio, strengthen our cost structure, drive focus on the most productive areas of our business, deliver greater impact from brand-building investments, and improve executional excellence across the enterprise.

The restructuring element of the Transformation Initiative was substantially completed by December 31, 2023.

The Company expects to continue driving benefits from its three Transformation Initiative Pillars of Brand Maximization, Margin Enhancement, and Operating Discipline:

In October 2025, our Board of Directors approved Transformation 2.0:

Powering Honest Growth ("Powering Honest Growth") which builds upon our original Transformation Pillars of Brand Maximization, Margin Enhancement and Operating Discipline.

Powering Honest Growth is aimed at improving simplicity, focus and profitability, which includes exiting certain lower margin, non-strategic categories and channels, including exiting Honest.com fulfillment and apparel, as well as exiting retail and online stores in Canada, optimizing our cost structure by rightsizing selling, general and administrative expenses and implementing supply chain efficiencies.

Powering Honest Growth is projected to result in the following:

• Costs associated with Powering Honest Growth, including restructuring costs, are expected to be approximately $30.0 million to $35.0 million to be recognized through the first quarter of 2027.

During the year ended December 31, 2025, we have recognized $24.0 million of total costs related to Powering Honest Growth.

See table below for additional details of total costs.

◦ Of this range, we expect approximately $5.0 million to $8.0 million to be related to restructuring costs, primarily comprising contractual and external obligation costs, employee and personnel-related costs and asset and other restructuring-related costs, and approximately $25.0 million to $27.0 million to be related to other costs included in cost of revenue, primarily related to a discrete inventory write-down related to exiting apparel, fixed asset impairments, and costs associated with the warehouse closure, some of which

have already been incurred.

For the year ended December 31, 2025, we have recognized $4.2 million in restructuring costs and $19.8 million in cost of revenue included on the consolidated statements of comprehensive loss.

• Powering Honest Growth is expected to result in annualized benefits in the range of approximately $10.0 million to $15.0 million, and the Company expects to begin seeing benefits in 2026.

These benefits include reduction in costs of revenue and reduction in operating expenses, offset by a decrease in revenue related to the exit of lower margin non-strategic portfolios.

• The cash impact of costs related to Powering Honest Growth is expected to be in the range of approximately $15.0 million to $20.0 million for the full year 2026, with an immaterial amount of costs incurred during the year ended December 31, 2025 and the remainder to be incurred in 2026 and 2027.

• We expect the restructuring element of Powering Honest Growth to be substantially completed by December 31, 2026.

We may incur other costs or cash expenditures not currently contemplated as a result of or in connection with Powering Honest Growth.

We expect to continue driving benefits from the three Transformation Pillars of Brand Maximization, Margin Enhancement, and Operating Discipline:

1) Brand Maximization

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• Pricing strategy as a driver of revenue is also a component of Brand Maximization.

This includes the ongoing benefit of pricing increases across the majority of our product portfolio in 2022 and 2023.

2) Margin Enhancement

• Focusing our resources on North America, which included the exit of our low-margin business in Europe and Asia.

• Exiting low-margin elements of the cleaning and sanitization business in 2023.

• Focusing our resources on the United States, which included the exit of our low-margin products in Europe and Asia in 2023 and, most recently, Canada in 2025.

• Exiting low-margin elements of cleaning and sanitization products in 2023 and apparel in 2025.

• Executing an inventory, or stock-keeping unit (“SKU”), rationalization program in 2023.

• Re-directing resources to accelerate cost savings, including optimization of our contract manufacturing strategies, reduced shipping and logistic costs, and product costs.

• Realigning resources to reflect the prioritization of higher-margin opportunities, including strategic shift away from our lower margin channels, including our direct-to-consumer (“DTC”) business .

• Re-directing resources to accelerate cost savings, including optimization of our contract manufacturing strategies, optimization of our supply chain footprint and inventory management, along with leveraging technology to improve systems, reduced shipping and logistic costs, and product costs.

• Realigning resources to reflect the prioritization of higher-margin opportunities, including strategic shift away from our lower margin channels, including exiting our direct-to-consumer (“DTC”) channel in 2025 .

3) Operating Discipline

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• Managing working capital including the reduction of inventory.

For further details on the restructuring element of the Transformation Initiative, refer to Note 15, "Restructuring" included in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

• Rightsizing selling and general and administrative costs.

Costs associated with Powering Honest Growth for the year ended December 31, 2025 were as follows (in thousands):

For the year ended December 31, 2025

Cost of Revenue (1)

Restructuring Costs (2)

Total $ 23,996

______________

(1) Cost of revenue includes discrete inventory write-downs of $15.9 million related to the exit of apparel, machinery and equipment write-offs of $2.5 million, apparel purchase commitments of $1.1 million and accelerated depreciation of $0.4 million for the year ended December 31, 2025.

(2) Refer to the restructuring table under "Results of Operations" below for further details of operating expenses included in restructuring costs on the consolidated statements of comprehensive loss.

For further details on the restructuring element of Powering Honest Growth, refer to Note 15, “Restructuring ” included in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Key Factors Affecting Our Performance

We believe that the growth of our business and our future success are dependent on many factors.

While each of these factors presents significant opportunities for us, they also pose important challenges that we must successfully address to enable us to sustain the growth of our business and improve our operations while staying true to our mission, including those discussed below and in the section of this Annual Report on Form 10-K titled “Item 1A.

While each of these factors presents significant opportunities for us, they also pose important challenges that we must successfully address to enable

us to sustain the growth of our business and improve our operations while staying true to our mission, including those discussed below and in the section of this Annual Report on Form 10-K titled “Item 1A.

Risk Factors.”

Operational and Marketing Efficienc y

To grow our business, we intend to continue to improve our operational and marketing efficiency, which includes attracting new consumers, increasing community engagement and improving fulfillment and distribution operations.

Our marketing model is inclusive of a best-in-class modern approach across paid, owned, and earned marketing channels.

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It is important to maintain reasonable costs for these marketing efforts relative to the revenue we expect to derive from our consumers.

We leverage proprietary consumer insights and best-in-class analytics to guide our omnichannel strategy and inform our marketing spend optimization.

We leverage proprietary consumer insights and best-in-class analytics to guide our distribution strategy and inform our marketing spend optimization.

Our future success depends in part on our ability to effectively attract consumers on a cost-efficient basis and achieve efficiencies in our operations.

In addition, we believe we have been able to achieve some operational and marketing efficiency as part of cost savings in connection with our Brand Maximization Transformation Pillar.

Ability to Execute Increasing Physical Availability

The core of our growth strategy centers around increasing physical availability of our products through expanded stores, doors, aisles, shelves and facings.

Ability to Execute Increasing Physical and Digital Availability

The core of our growth strategy centers around increasing physical and digital availability of our products through expanded stores, doors, aisles, shelves and facings.

While we have made significant progress in our distribution gains, we are still under indexed compared to competition.

Our partnerships with leading third-party retail platforms and national retailers have broadened our consumer reach, raised our brand awareness and enhanced our margins through operating leverage.

With the higher costs of shipping and fulfillment activities related to our direct-to-consumer (“DTC”) business and other related costs, we will continue to shift our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers.

As we move forward beyond 2025, we will gradually transition away from Honest.com as a shipping and fulfillment channel, while ensuring the site remains a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite.

We will continue to pursue partnerships with a wide variety of retailers, including mass retailers, online retailers, club retailers, grocery stores, drugstores and specialty retailers.

Our ability to execute this strategy will depend on a number of factors, such as competitive dynamics and retailers’ satisfaction with the sales and profitability of our products, channel shifts of their customers, and their own supply chain, order timing, and inventory needs, which may fluctuate from period to period.

For example, we experienced distribution losses with two of our largest customers on certain diaper SKUs mainly related to these retailers' footprint changes for certain product categories overall and a shift to more exclusive non-gendered prints with one of these retailers, which impacted our revenue in 2025 and we expect will continue to negatively impact our diaper revenue in the future.

Due to higher costs of shipping and fulfillment activities related to our DTC channel and other related costs, we no longer utilize Honest.com as a shipping and fulfillment channel or sell products through this channel as of December 31, 2025 and instead continue to shift our focus and investments towards more efficient and scalable distribution models with our current retail and digital customers.

The Honest.com website will remain a resource for educating consumers, showcasing our complete product portfolio, and driving consumers to purchase offsite.

Our discontinuation of Honest.com as a direct shipping and fulfillment channel negatively impacted our revenue for the year ended December 31, 2025;

however, we also expect that it will enable improved gross margin in future years.

Our product mix is a driver of our financial performance given our focus on accretive product launches and innovation to increase product margins.

Even though our growth strategy aims to boost sales across products by increasing total distribution, we intend to prioritize growth in products with attractive margin characteristics, including wipes, and leverage our brand equity and consumer insights to extend into new products.

Even though our growth strategy aims to boost sales across products by increasing total distribution, we intend to prioritize growth in products with attractive margin characteristics, including wipes and personal care, and leverage our brand equity and consumer insights to extend into new products.

Ability to Grow Our Brand Awareness

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In order to increase the share of wallet of our existing consumers and to attract new consumers, our brand has to maintain its trustworthiness and authenticity.

Our ability to attract new consumers will depend on, among other things, the efficacy of our marketing efforts, our ability to successfully produce products that are free of defects and communicate the value of those products as cleanly-formulated and sustainably-designed and effective and the competing offerings of our competitors.

Our ability to attract new consumers will depend on, among other things, the efficacy of our marketing efforts, our ability to successfully produce products that are free of defects, our ability to communicate the value of those products as cleanly-formulated, sustainably-designed and effective, and the offerings of our competitors.

Beyond preserving the integrity of our brand, our performance will depend on our ability to augment our reach and increase the number of consumers aware of Honest and our product portfolio.

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Through our in-house research and development laboratories, we are able to access the latest advancements in clean ingredients.

Based in Los Angeles, California, our research and development team, including chemists, an in-house toxicologist and an eco-toxicologist, develops innovative cleanly-formulated products based on the latest green technology.

At Honest, product innovation is top of mind.

Based in Los Angeles, California, our research and development team, including experts in chemistry and toxicology, develop innovative cleanly-formulated products.

At Honest, product innovation is top of mind, including wipes pack size expansion and kids personal care.

The improvement of existing products and the introduction of new products have been, and continue to be, integral to our growth.

We have made significant investments in our product development capabilities and plan to continue to do so in the future.

We believe our rigorous approach to product innovation has helped redefine and grow the clean and natural product categories in which we operate.

Our continued focus on research and development will be central to attracting and retaining consumers in the future.

We believe our rigorous approach to product innovation has helped redefine and grow the clean and naturally-derived product categories in which we operate.

Our continued focus on research and development will be central to attracting and retaining

consumers in the future.

Our ability to successfully develop, market and sell new products will depend on a variety of factors, including our continued investment in innovation.

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Overall Macro Trends

We have strategically positioned ourselves to benefit from several macro trends related to changes in consumer behavior.

We believe consumers’ increasing interest in cleanly-designed products and purpose-driven companies has contributed to higher demand for certain products.

At the same time, changes in macro-level trends, including as a result of global pandemics, changing consumer attitudes or behavior or other macroeconomic conditions, such as inflation, tariffs or supply chain disruptions, have resulted and could in the future result in fluctuations in our operating results.

We believe consumers’ increasing interest in cleanly-designed products and purpose-driven companies has contributed to higher demand for certain products, which we believe we are strategically positioned to benefit from.

At the same time, changes in macro-level trends, including as a result of changing consumer attitudes or behaviors or other macroeconomic conditions (such as inflation, tariffs, supply chain disruptions, trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and any resulting recession or slowed economic growth), have resulted and could in the future result in fluctuations in our operating results.

Business Operations

Global economic and political uncertainty have increased due to the impact of continued inflationary pressures, adverse impact on confidence in financial markets and geopolitical events.

Additionally, the extent of the impact of macroeconomic trends on the Company’s operational and financial performance in the future will depend on future developments.

Prolonged unfavorable economic conditions, including as a result of global pandemics, changing consumer attitudes or behavior or other macroeconomic conditions, such as inflation, tariffs or supply chain disruptions, have had and may continue to have an adverse effect on our sales and profitability.

All of these factors are difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.

Global economic and political uncertainty have increased due to the impact of continued inflationary pressures, adverse impact on confidence in financial markets and geopolitical events, including recently imposed tariffs on certain foreign goods, the possibility of expanding the tariffs to capture other types of goods, and related legal challenges.

Additionally, the extent of the impact of macroeconomic trends on our operational and financial performance in the future will depend on future developments.

Prolonged unfavorable economic conditions, including as a result of changing consumer attitudes or behaviors or other macroeconomic conditions (such as inflation, tariffs, supply chain disruptions, trade disputes, foreign exchange volatility, geopolitical uncertainty, financial market instability and any resulting recession or slowed economic growth), have had and may continue to have an adverse effect on our sales, margins and profitability.

All of these factors are difficult to predict considering the rapidly evolving landscape as we continue to expect a variable operating environment going forward.

Supply Chain Disruptions

There has been and continues to be an adverse impact on global economic conditions, specifically inflationary pressures, which has adversely affected our supply chain in regards to cost of sales.

We have experienced and anticipate continued increases in product costs and labor costs due to inflationary pressures and higher transportation costs from ocean container delivery, which has in the past and could continue to hamper our ability to drive margin expansion.

We have taken measures to bolster key aspects of our supply chain, such as ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our Operating Discipline Transformation Pillar.

We expect to continue to receive fulfillment costs savings due to warehouse and labor operational efficiencies gained with our Las Vegas, Nevada fulfillment center partner.

If we are not successful in negotiating future renewals with our other fulfillment partner such that these renewals are at increased costs to us, our business, financial condition, results of operations and prospects could be adversely affected.

In January 2024, we negotiated better purchase price terms with one of our third-party manufacturers, Ontex.

However, we have experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future.

There has been and continues to be an adverse impact on global economic conditions, specifically tariffs and inflationary pressures, which has adversely affected our supply chain in regards to cost of revenue.

We have experienced and anticipate continued increases in product costs due to inflationary pressures, which has in the past and could continue to hamper our ability to drive margin expansion.

In addition, notwithstanding legal challenges, we expect tariffs to continue to negatively impact the cost of raw materials, components and finished goods, which has adversely impacted our operational expenses, and may negatively impact our ability to source our finished goods and components.

We have taken measures to bolster key aspects of our supply chain and mitigate the impact of tariffs, such as creating an agile supply chain, ensuring sufficient inventory to support our continued growth, minimizing lead times for raw materials, and implementing a robust cost-savings program, as part of our tariff mitigation strategy.

In addition, in early 2025 we hired a Senior Vice President of Supply Chain, a newly created role, which has enabled us to accelerate some of the cost savings opportunities we have developed.

If we are not successful in our attempts to bolster our supply chain and mitigate the impact of tariffs, our product and fulfillment costs may increase and our business, financial condition, results of operations and prospects could be adversely affected.

For example, the fluctuation in tariff rates during the year ended December 31, 2025 and the ongoing uncertainty of those rates, has primarily impacted our wipes product costs during this period, and may in the future impact our ability to forecast the tariff impacts on our cost of revenue.

As part of Powering Honest Growth, we are also taking action to optimize our supply chain footprint and inventory management, along with leveraging technology to improve systems.

Additionally, we have experienced purchase price increases from our third-party manufacturers in the past and could face escalation of purchase costs and cost of revenue in the future.

In 2025, we agreed to increased purchase costs from our diaper manufacturer and received requests to renegotiate purchase costs from other third-party manufacturers, which negotiations are ongoing.

We implemented price increases that took effect in 2022 and 2023 and we may implement additional price increases in the future as needed to offset current and future input cost inflation and to pursue productivity initiatives to offset inflation.

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Consumer Preferences

We believe in the power of our omnichannel distribution model.

We believe consumers value the flexibility in terms of where and when they choose to purchase Honest products.

We also believe that consumers research their personal care ingredients and recognize the quality of Honest products, knowing that there are over 3,500 chemicals and materials that we choose not to formulate with.

Inventory is reflected at net realizable value which includes a reserve for excess inventory.

Given changing macroeconomic conditions, we also believe that consumers have changed their shopping behaviors and have become more price sensitive when purchasing products in some of our product categories, including diapers.

Inventory is reflected at the lower of cost or net realizable value which includes a reserve for excess inventory.

We estimate reserve requirements based on current and forecasted demand, including the ability to liquidate excess inventory and estimated liquidation value.

Depending on future consumer behavior in relation to the macroeconomic environment or otherwise and related aging of inventory, among other factors, we have in the past and expect to incur in the future additional inventory write-downs, customer returns or incur donation expense or disposal costs as we reduce excess inventory.

In connection with the termination of the Likeness Agreement with Jessica Warren, as part of Ms.

Warren's departure from her Chief Creative Officer position, after April 4, 2025 we are prohibited from selling existing inventory that uses certain specified licensed intellectual property on its packaging, which resulted in inventory write-offs and we anticipate will result in future inventory write-offs.

For the year ended December 31, 2024, we recorded an inventory write-down of $0.8 million, inclusive of overhead costs and tariffs, related to the termination of the Likeness Agreement, which is included in cost of revenue on the consolidated statements of comprehensive loss.

Additionally, we earmarked donations of $0.4 million, inclusive of overhead costs and tariffs, related to the termination of the Likeness Agreement during the year ended December 31, 2024, which is included in selling, general and administrative expense on the consolidated statements of comprehensive loss.

As part of our efforts to mitigate the impact of tariffs, we increased our inventory on hand during the first half of 2025 to delay the impact of incremental tariffs during 2025.

In connection with Powering Honest Growth, we recorded a discrete apparel inventory write-down of $15.9 million, inclusive of overhead costs and tariffs, related to the termination of our Supplier Services Agreement (defined below), which is included in cost of revenue on the consolidated statements of comprehensive loss.

Additionally, unrelated to Powering Honest Growth, we earmarked donations of $2.1 million related to diaper inventory forecast reductions with a key retailer, which is included in selling, general and administrative expenses on the consolidated statements of comprehensive loss.

In connection with the termination of the Likeness Agreement with Jessica Alba, as part of Ms.

Alba's departure from her Chief Creative Officer position, after April 4, 2025 we have been prohibited from selling inventory that uses certain specified licensed intellectual property on its packaging, which resulted in additional immaterial inventory write-offs during the year ended December 31, 2025.

Supplier Services Agreement

In 2019, we entered into a license agreement with Butterblu, LLC, or Butterblu, pursuant to which we licensed certain of our trademarks to Butterblu for the manufacture and distribution of certain baby apparel products in exchange for royalties.

Butterblu operates and maintains our baby apparel offerings independently through the honestbabyclothing.com website.

For the year ended December 31, 2022, we collected $1.0 million in royalty revenue related to this license agreement.

In August 2022, we terminated the license agreement in advance of its expiration date and entered into a supplier services agreement with Butterblu, pursuant to which Butterblu provides certain design, manufacturing, sales and marketing services to us.

As part of the supplier services agreement, we have agreed to purchase and own inventory for the term of the supplier service agreement, which is until December 31, 2026, unless terminated sooner.

We are currently in discussions with Butterblu regarding our respective obligations under the supplier services agreement.

Butterblu continues to operate and maintain our baby apparel offerings independently through the honestbabyclothing.com website under our supplier services agreement and its sales are reflected as revenue in our consolidated statements of comprehensive loss.

These discussions could result in termination of the supplier services agreement prior to its termination date, potential disputes over the terms of termination, and costs to us related to the inventory we agreed to purchase and own for the term of the agreement.

In addition, any loss of the relationship with Butterblu may negatively impact sales of our baby apparel, which will adversely affect our results of operations.

In August 2022, we entered into a supplier services agreement with Butterblu, LLC (“Butterblu”) pursuant to which Butterblu provided certain design, manufacturing, sales and marketing services to us (the “Supplier Services Agreement”).

As part of the Supplier Services Agreement, we agreed to purchase and own inventory for the term of the agreement, which was originally until December 31, 2026, unless terminated sooner.

On November 5, 2025, we had sent a Notice of Termination to Butterblu and sued the company for alleged breaches of the Supplier Services Agreement.

Through agreement of the parties following our Notice of Termination, Honest and Butterblu extended the Supplier Services Agreement on a temporary basis through December 26, 2025.

The Supplier Services Agreement was formally terminated on December 26, 2025.

Upon termination, Butterblu was required to discontinue using Honest’s trademarks and prints and to consummate all pending purchase orders received in writing as of the November 5, 2025 termination date, and Honest has the right to sell off all products sourced by Butterblu until and through December 26, 2026 and shall pay Butterblu the Base Service Fee, defined as 22% of Honest's net revenue for product sales and adjusted to ensure that the Base Service Fee does not exceed Honest's gross profit for product sales in the applicable quarter, for product sales through December 26, 2026.

We re-filed our suit against Butterblu for the alleged breaches of the Supplier Services Agreement on January 2, 2026.

Litigation related to our respective obligations under the Supplier Services Agreement, the termination of this Supplier Services Agreement, any disputes over the terms of the termination, and costs related to the apparel inventory we own have negatively impacted revenue and gross profit, offset by lower operating costs for the fourth quarter ended December 31, 2025 and full year 2025, and are expected to continue to adversely impact our results of operations going forward.

In addition, the loss of the relationship with Butterblu negatively impacted apparel revenue and will negatively impact apparel revenue in the future, which may adversely affect our results of operations.

Components of Results of Operations

We generate revenue through the sale of our products through our leading retailers and their websites, third-party ecommerce sites and Honest.com.

We generate revenue through the sale of our products through our leading retailers and their websites, third-party ecommerce sites and, prior to December 31, 2025, Honest.com.

Our revenue is recognized net of allowances for returns, discounts, credits and any taxes collected from consumers.

Disaggregation of Revenue

We had previously presented our revenue by sales channel of Digital and Retail and by product category of Diapers and Wipes, Skin and Personal Care and Household and Wellness.

In determining the appropriate categories to use to disaggregate revenue in accordance with the requirements of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, we had considered the information regularly reviewed by our chief operating decision maker (“CODM”) for evaluating our financial performance and making resource allocation decisions and the guidance to disaggregate revenue from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

In 2023, we executed a broad-based Transformation Initiative with Brand Maximization as one of the Pillars designed to leverage the strength of the Honest brand.

As part of our strategy to build the Honest brand, our CODM evaluates our financial performance and makes resource allocation decisions across our products as one brand of a portfolio of multiple products.

As a result, in the first quarter of 2024, we removed the disaggregation of revenue by product category to align with changes made to our long-term strategy and we began disaggregating revenue by (i) direct-to-consumer ("DTC") and (ii) retail and third-party ecommerce customers.

The change had no effect on our results of operations or timing of revenue recognition.

Cost of Revenue

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Gross margin is gross profit expressed as a percentage of revenue.

Our gross margin may in the future fluctuate from period to period based on a number of factors, including commodity costs, manufacturing costs, warehousing and transportation rates, the promotional environment in the marketplace, the mix of products we sell, the channel through which we sell our products, and innovation initiatives we undertake in each product category, among other factors.

we sell, the channel through which we sell our products, and innovation initiatives we undertake in each product category, among other factors.

Operating Expenses

Our operating expenses consist of selling, general and administrative, marketing and research and development expenses.

Our operating expenses consist of selling, general and administrative, marketing, restructuring and research and development expenses.

Selling, General and Administrative

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facility costs, including insurance, utilities and rent relating to our headquarters;

third-party service fees related to our supplier services agreement for Honest baby clothing, our baby apparel business;

third-party service fees related to our Supplier Services Agreement for Honest baby clothing, our apparel products;

and, depreciation and amortization expenses.

We expect our general and administrative expenses to decrease as a percentage of revenue as we continue to grow our business and organizational capabilities and efficiencies.

We expect in the future to incur additional third-party professional fees related to compliance obligations as a public company.

Marketing expenses include costs related to our branding initiatives, retail customer marketing activities, point of purchase displays, targeted online advertising through sponsored search, display advertising, email and influencer marketing campaigns, market research, content production and other public relations and promotional initiatives.

Given higher costs in digital marketing and increased retail distribution, we have shifted the focus of our marketing spend towards supporting retail marketing programs and top of funnel marketing activities.

We will continue to invest in marketing initiatives in our best-selling products with key retailers, as well as expand brand awareness, introduce new product innovation across multiple product categories and implement new marketing strategies.

As we launch new products, we expect to make marketing investments to build brand awareness, drive trial and set the foundation for future revenue growth.

We have incurred and expect in the future to continue to incur additional third-party professional fees related to compliance obligations as a public company.

Marketing expenses include costs related to our branding initiatives, retail customer marketing activities, point of purchase displays, targeted online advertising through sponsored search, display advertising, email and influencer marketing campaigns, market research, content production, consumer insights research, and other public relations and promotional initiatives.

Given the dynamic macro-environment, higher costs in digital marketing and increased retail distribution, we will continue to optimize our marketing activities for impact and efficiency.

We will continue to prioritize investment in marketing initiatives around our most strategic and profitable categories, through strategic key retailers activities, as well as brand building campaigns and initiatives.

As we launch new products, we expect to make marketing investments to support growth at key retailers, build brand awareness, encourage first-time use and set the foundation for future revenue growth.

Research and Development

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dollar and contingent gains.

We expect our foreign currency gains and losses to be immaterial in

future periods but continue to fluctuate due to changes in both the volume of foreign currency transactions and foreign currency exchange rates.

We expect our foreign currency gains and losses to be immaterial in future periods but continue to fluctuate due to changes in both the volume of foreign currency transactions and foreign currency exchange rates.

Income Tax Provision

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Revenue was $371.3 million for the year ended December 31, 2025, as compared to $378.3 million for the year ended December 31, 2024.

The increase of $34.0 million, or 9.9%, was primarily due to an increase in retail customer revenue of $45.0 million, partially offset by a decrease in DTC revenue of $11.0 million.

The increase in retail customer revenue is primarily due to an increase in wipes revenue of $22.6 million, an increase in baby apparel revenue of $18.8 million and an increase in baby personal care revenue of $6.2 million, partially offset by a decline in adult facial care, including skin and color cosmetics, revenue of $4.5 million.

The decrease in DTC revenue is primarily related to a decline in diaper revenue of $6.6 million and a decline in adult facial care revenue of $1.7 million.

We estimate that pricing increases taken in 2023 contributed $3.3 million, excluding price pack architecture, to revenue for the year ended December 31, 2024.

The decrease of $7.0 million, or 1.9%, was primarily due to the discrete exits related to Powering Honest Growth of $21.9 million (inclusive of a decrease in DTC revenue of $13.2 million, a decrease in apparel revenue of $7.7 million and a decrease in Canada revenue of $1.0 million), partially offset by an increase in retail customer revenue (excluding apparel and Canada revenue) of $14.9 million.

The increase in retail customer revenue is primarily due to an increase in wipes revenue of $27.6 million and an increase in baby personal care revenue of $6.7 million, partially offset by a decline in diaper revenue of $14.4 million primarily related to distribution losses, the lapping of certain retailer promotional events and changes in consumer shopping behavior, and a decline in adult facial care (including skin care and cosmetics) of $5.7 million.

Refer to the Organic Revenue table under “Non-GAAP Financial Measures” below for further details of revenue excluding the revenue associated with the discrete exits related to Powering Honest Growth.

Cost of Revenue and Gross Profit

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Cost of revenue was $247.6 million for the year ended December 31, 2025, as compared to $233.7 million for the year ended December 31, 2024.

The decrease of $10.2 million, or 4.2%, was primarily driven by lower product costs, overhead costs, transportation and fulfillment costs as we focus on operating discipline, partially offset by an increase in baby apparel costs.

Cost of revenue as a percentage of revenue decreased by 9.0% primarily due to cost savings across most of the cost structure, including supply chain and product costs, price increases and lower trade promotion levels as compared to the year ended December 31, 2023.

The increase of $13.9 million, or 5.9%, was primarily driven by the discrete inventory write-down of $15.9 million related to the exit of apparel, machinery and equipment write-offs of $2.5 million, and apparel purchase commitments of $1.1 million, in each case as part of Powering Honest Growth, as well as an increase in tariff costs, partially offset by lower sales volume related to the discrete product and channel exits of Powering Honest Growth.

Cost of revenue as a percentage of revenue decreased by 4.9% compared to the year ended December 31, 2024.

Gross profit was $123.8 million for the year ended December 31, 2025, as compared to $144.7 million for the year ended December 31, 2024.

The increase of $44.1 million, or 43.9%, was primarily related to cost savings, including reduced transportation, fulfillment and product costs, sales volume growth, price increases and efficient trade spend.

The decrease of $20.9 million, or 14.4%, was primarily related to the discrete exit costs related to Powering Honest Growth and the decline in diaper revenue, as well as an increase in tariff costs, partially offset by favorable product mix.

Operating Expenses

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Selling, general and administrative expenses were $79.5 million for the year ended December 31, 2025, as compared to $99.0 million for the year ended December 31, 2024.

The increase of $4.5 million, or 4.7%, was primarily due to an $7.9 million increase in legal expenses and a $3.7 million increase in service fees related to baby apparel, partially offset by a $3.1 million decrease in donations expense primarily related to our SKU rationalization program under the Transformation Initiative in 2023, a $1.2 million decrease in executive transition related expenses, a $1.1 million decrease in employee related expenses, a $1.0 million decrease in insurance premiums and a $0.8 million decrease in violations and compliance charges related to vendor violations.

The decrease of $19.5 million, or 19.7%, was primarily due to a $12.5 million decrease in legal expenses related to litigation settlement, a $5.4 million decrease in stock-based compensation expense, a $2.3 million decrease in commission and sales service fees, and a $1.4 million decrease in employee-related costs, partially offset by a $2.0 million increase in donations expense mainly related to diaper inventory.

Selling, general and administrative expenses as a percentage of revenue decreased 4.8% as compared to the year ended December 31, 2024.

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Marketing expenses were $51.2 million for the year ended December 31, 2025, as compared to $45.1 million for the year ended December 31, 2024.

The increase of $8.7 million, or 23.7%, was primarily due to a $5.9 million increase in retail marketing, a $1.5 million increase in marketing agency fees and $0.5 million increase in photo and video production fees.

The increase of $6.1 million, or 13.5%, was primarily due to a $4.9 million increase in retail marketing, a $0.9 million increase in direct brand advertising and a $0.9 million increase in marketing agency fees.

Marketing expenses as a percentage of revenue increased 1.9% as compared to the year ended December 31, 2024.

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Restructuring $ 4,159 $ — $ 4,159 100.0 %

Restructuring expenses were $2.2 million for the year ended December 31, 2023.

Restructuring expenses are one of the elements of the Transformation Initiative.

For the year ended December 31, 2023, restructuring expenses included employee-related costs of $1.1 million, contract termination costs of $0.9 million, and asset-related costs of $0.2 million.

For further details on the Transformation Initiative, refer to Note 15, "Restructuring" in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Restructuring expenses are one of the elements of Powering Honest Growth.

Restructuring expenses included contract and external obligation costs of $2.5 million, employee and personnel-related costs of $0.9 million and asset and other restructuring-related costs of $0.8 million for the year ended December 31, 2025.

For the year ended December 31, 2024, we did not incur any restructuring expenses.

For further details on Powering Honest Growth, refer to “Transformation 2.0:

Powering Honest Growth” above and Note 15, “Restructuring” in the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Research and Development Expenses

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Interest and other income (expense), net $ 2,979 $ 282 $ 2,697

Interest and other income (expense), net was income of $0.3 million for the year ended December 31, 2024, as compared to expense of $0.3 million for the year ended December 31, 2023.

Interest and other income (expense), net was net income of $3.0 million for the year ended December 31, 2025, as compared to net expense of $0.3 million for the year ended December 31, 2024.

The increase of $2.7 million primarily relates to interest income earned on our money market account.

Liquidity and Capital Resources

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Although we are dependent on our ability to generate sufficient cash flow from operations or raise capital to achieve our business objectives, we believe our existing cash and cash equivalents together with cash generated from operations will be sufficient to meet our short-term projected operations for the next 12 months from the date of issuance of our consolidated financial statements.

We will need to generate sufficient cash from operations or raise additional capital to meet our long-term working capital and capital expenditure needs.

We will need to generate sufficient cash from operations or may need to raise additional capital to meet our long-term working capital and capital expenditure needs in the future.

We also have availability under our 2023 Credit Facility, which was not drawn as of December 31, 2025.

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Net cash provided by operating activities $ 15,121 $ 1,541

Net cash provided by (used in) investing activities $ (530) $ 3,835

Net cash used in investing activities $ (1,510) $ (530)

Net cash provided by financing activities $ 535 $ 41,597

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Our primary uses of cash from operating activities are for cost of revenue, selling, general and administrative expenses, marketing expenses and research and development expenses.

We have in the past generated negative cash flows from operating activities and have supplemented working capital requirements through net proceeds from the sale and maturity of short-term investments.

Net cash provided by operating activities of $15.1 million for the year ended December 31, 2025 was primarily due to non-cash adjustments of $45.0 million, offset by a net decrease in cash related to changes in operating assets and liabilities of $14.2 million and a net loss of $15.7 million.

Non-cash adjustments primarily consisted of stock-based compensation of $15.7 million, amortization of operating Right-Of-Use ("ROU") assets of $6.4 million and depreciation and amortization of $2.8 million.

Changes in cash flows related to operating assets and liabilities primarily consisted of a $10.9 million increase in inventory, a $8.1 million use of cash due to operating lease obligations, a $1.4 million increase in prepaid expenses and other assets due to timing of payments and a $1.0 million increase in deferred revenue, offset by a $3.8 million increase in accounts payable and accrued expenses due to timing of payments and a $0.4 million increase in accounts receivable.

Net cash provided by operating activities of $19.4 million for the year ended December 31, 2023 was primarily due to a net increase in cash related to changes in operating assets and liabilities of $35.2 million, and non-cash adjustments of $23.4 million, offset by a net loss of $39.2 million.

Non-cash adjustments primarily consisted of the discrete apparel inventory write-down of $15.9 million, stock-based compensation of $10.5 million, amortization of operating Right-Of-Use (“ROU”) assets of $6.6 million, depreciation and amortization of $2.9 million, and $2.9 million of asset impairments related to fixed assets and technology taken out of service and accelerated depreciation for assets retired prior to their useful life in connection with Powering Honest Growth.

Changes in cash flows related to operating assets and liabilities primarily consisted of a $11.2 million decrease in accounts payable and accrued expenses due to timing of payments, a $8.9 million use of cash due to operating lease obligations, a $7.5 million increase in inventory and a $0.4 million decrease in deferred revenue, partially offset by a $10.2 million decrease in accounts receivable and a $3.6 million decrease in prepaid expenses and other assets due to timing of payments.

Net cash provided by operating activities of $1.5 million for the year ended December 31, 2024 was primarily due to non-cash adjustments of $25.7 million, offset by a net decrease in cash related to changes in operating assets and liabilities of $18.0 million and a net loss of $6.1 million.

Non-cash adjustments primarily consisted of stock-based compensation of $15.7 million, amortization of operating ROU assets of $6.4 million and depreciation and amortization of $2.8 million.

Changes in cash flows related to operating assets and liabilities primarily consisted of a $43.5 million decrease in inventory, an $8.0 million decrease in prepaid expenses and other assets due to timing of payments, and a $1.4 million increase in deferred revenue, offset by $9.3 million in lower accounts payable and accrued expenses driven by lower inventory purchases due to our disciplined inventory management, a $7.7 million use of cash due to operating lease obligations and a $0.7 million increase in accounts receivable.

Investing Activities

Our primary source of investing cash historically has been the sale and maturity of short-term investments.

Our primary use of investing cash historically has been the purchase of short-term investments and currently is property and equipment.

Net cash used in investing activities of $0.5 million for the year ended December 31, 2024 was due to the purchase of property and equipment of $0.5 million.

Net cash provided by investing activities of $3.8 million for the year ended December 31, 2023 was due to the proceeds from the maturities of short-term investments of $5.7 million, offset by the purchase of property and equipment of $1.8 million.

Our primary use of investing cash is property and equipment.

Net cash used in investing activities of $1.5 million for the year ended December 31, 2025 was due to the purchase of property and equipment.

Net cash used in investing activities of $0.5 million for the year ended December 31, 2024 was due to the purchase of property and equipment.

Financing Activities

Our financing activities primarily consisted of proceeds from sales of securities, proceeds from stock option award exercises and principal payments of financing lease obligations.

Net cash provided by financing activities of $0.5 million for the year ended December 31, 2025 primarily consisted of proceeds from the exercise of stock options and proceeds from the 2021 Employee Stock Purchase Plan (“2021 ESPP”).

Net cash provided by financing activities of $41.6 million for the year ended December 31, 2024 primarily consisted of proceeds from the exercise of stock options and proceeds from the 2021 Employee Stock Purchase Plan (“2021 ESPP”), partially offset by principal payments of financing lease obligations.

Net cash provided by financing activities of $122 thousand for the year ended December 31, 2023 primarily consisted of proceeds from the 2021 ESPP, partially offset by principal payments of financing lease

Share Repurchase Program

On February 20, 2026, the Company’s Board of Directors approved the Company’s first share repurchase program for up to $25.0 million of its outstanding common stock.

Under the program, share repurchases may be made at the Company’s discretion from time to time in open market transactions or privately negotiated transactions, or by other means, including through Rule 10b5-1 trading plans.

The timing and number of shares repurchased under the new program will depend on a variety of factors, including, without limitation, stock price, trading volume, and general business and market conditions.

The repurchase program does not obligate the Company to purchase any shares, has no expiration date and may be modified, suspended or terminated at any time.

The Company expects to fund repurchases with a combination of existing cash and cash equivalents and cash flows from operations.

We do not anticipate declaring or paying any cash dividends in the foreseeable future.

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The 2023 Credit Facility contains restrictions on our ability to pay dividends.

Non-GAAP Financial Measure

Non-GAAP Financial Measures

We prepare and present our consolidated financial statements in accordance with GAAP.

However, management believes that adjusted EBITDA, a non-GAAP financial measure, provides investors with additional useful information in evaluating our performance.

However, management believes that Organic Revenue and Adjusted EBITDA, which are non-GAAP financial measures, provide investors with additional useful information in evaluating our performance.

We calculate Organic Revenue as net revenue, adjusted to exclude revenue from exited operations in connection with Powering Honest Growth including:

(1) product revenue from our apparel line;

(2) revenue from our Honest.com website as a fulfillment center;

(3) revenue from sales to Canadian retailers or channels and (4) in certain periods, revenue from other acquisitions, divestitures and product or channel exits.

We calculate Adjusted EBITDA as net income (loss), adjusted to exclude:

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(5) litigation and settlement fees associated with certain non-ordinary course securities litigation claims;

(6) Chief Executive Officer ("CEO"), Chief Financial Officer ("CFO") and founder and former Chief Creative Officer ("CCO") transition expenses and (7) restructuring expenses in connection with the Transformation Initiative.

Adjusted EBITDA is a financial measure that is not required by, or presented in accordance with GAAP.

We believe that adjusted EBITDA, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook.

In particular, we believe that the use of adjusted EBITDA is helpful to our investors as it is a measure used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.

(6) executive officer transition expenses;

and (7) restructuring-related expenses in connection with Powering Honest Growth.

Organic Revenue and Adjusted EBITDA are financial measures that are not required by, or presented in accordance with GAAP.

We believe that Organic Revenue and Adjusted EBITDA, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook.

In particular, we believe that the use of Organic Revenue and Adjusted EBITDA are helpful to our investors as they are measures used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.

Additionally, we believe Organic Revenue is helpful to our investors as it adjusts for revenue sources that we exited in connection with Powering Honest Growth.

Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

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(5) it does not reflect tax payments that may represent a reduction in cash available to us;

and (6) does not include certain non-ordinary cash expenses that we do not believe are representative of our business on a steady-state basis, such as CEO, CFO and founder/CCO transition expenses and restructuring expenses in connection with the Transformation Initiative.

In addition, our use of adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure.

Because of these limitations, when evaluating our performance, you should consider adjusted EBITDA alongside other financial measures, including our revenue, net income (loss) and other results stated in accordance with GAAP.

and (6) it does not include certain non-ordinary cash expenses that we do not believe are representative of our business on a steady-state basis, such as executive officer transition expenses.

In addition, our use of Adjusted EBITDA and Organic Revenue may not be comparable to similarly titled measures of other companies because they may not calculate Adjusted EBITDA in the same manner, limiting its usefulness as a comparative measure.

Because of these limitations, when evaluating our performance, you should consider Organic Revenue and Adjusted EBITDA alongside other financial measures, including our revenue, net income (loss) and other results stated in accordance with GAAP.

The following table presents a reconciliation of revenue, the most directly comparable financial measure stated in accordance with GAAP, to Organic Revenue, for each of the periods presented:

For the year ended December 31,

(In thousands) 2025 2024

Reconciliation of Revenue to Organic Revenue

Revenue $ 371,317 $ 378,340

Less revenue from:

Apparel 38,483 46,204

Honest.com 35,338 48,558

Canada 3,351 4,310

Organic Revenue $ 294,145 $ 279,268

The following table presents a reconciliation of net loss, the most directly comparable financial measure stated in accordance with GAAP, to Adjusted EBITDA, for each of the periods presented:

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Stock-based compensation 10,512 15,675

15,675 15,804

Securities litigation expense 1,292 12,440

CEO, CFO and founder/CCO transition expense (2)

Restructuring costs (3)

Executive officer transition expense (1)

Restructuring-related costs (2)

Payroll tax expense related to stock-based compensation 415 373

Adjusted EBITDA $ 21,821 $ 25,858

(1) Includes accelerated equity awards related to prior separation agreements of an aggregate of $3.1 million with our former CEO and CFO, respectively, during the year ended December 31, 2023.

Additionally, includes extension of post-termination stock option exercise periods for certain former executives, resulting in stock-based compensation expense of $0.5 million during the year ended December 31, 2023.

(2) Includes sign-on bonus, relocation, legal and recruiting costs related to the appointment of our CEO, as well as separation costs related to the termination of our former founder and CCO and former CFO.

(3) See Note 15 “Restructuring” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for items included in restructuring expense.

(1) For the year ended December 31, 2025, this includes separation, bonus and recruiting costs related to our Chief Financial Officer transition.

For the year ended December 31, 2024, this includes separation costs related to the exit of our former founder and Chief Creative Officer.

(2) See Note 15 “Restructuring” in our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for items included in restructuring-related costs.

Material Cash Requirements

We lease warehouse and office facilities under operating and finance lease agreements.

We lease warehouse and office facilities under operating lease agreements.

We have unconditional purchase commitments for software service subscriptions, advertising services and certain other services.

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Revenue Recognition

We generate revenue through the sale of our products direct-to-consumer through the Company’s website, retail and third-party ecommerce customers, who resell the Company’s products through traditional brick and mortar retailers, who may also resell the Company’s products through their own online platforms.

We generate revenue through the sale of our products to retailers and third-party ecommerce customers, who resell the Company’s products through traditional brick and mortar retailers, who may also resell the Company’s products through their own online platforms.

Effective December 31, 2025, we no longer sell direct-to-consumer through the Company’s website.

Our revenue is recognized net of allowances for returns, discounts, credits and any taxes collected from customers.

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We accrue the cost of shipping and handling and recognize revenue and costs at the point in time that control of the goods transfers to the customer.

In addition, the Company adopted the practical expedient to exclude from the transaction price all amounts collected from direct-to-consumer customers for sales and other taxes.

Retail and Third-Party Ecommerce

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Direct-to-Consumer

For direct sales to the consumer through our website, our performance obligation consists of the sale of finished goods to the consumer.

Consumers may purchase products at any time or enter into subscription arrangements.

Consumers place orders online in accordance with our standard terms and conditions and authorize payment when the order is placed.

Credit cards are charged at the time of shipment.

For subscription arrangements, consumers sign up to receive products on a periodic basis.

Subscriptions are cancellable at any time without penalty, and no amounts are collected from the consumer until products are shipped.

Revenue is recognized when transfer of control to the consumer takes place, which is when the product is delivered to the carrier.

Sales taxes collected from consumers are accounted for on a net basis and are excluded from revenue.

Consumers may purchase gift cards, which are recorded as deferred revenue at the time of purchase.

We recognize revenue when these gift cards are redeemed for products and the revenue recognition criteria as described above have been met.

Effective December 31, 2025, we no longer sell direct-to-consumer through the Company’s website.

For direct sales to the consumer through our website prior to December 31, 2025, our performance obligation consisted of the sale of finished goods to the consumer.

Consumers could purchase products at any time or enter into subscription arrangements.

Consumers placed orders online in accordance with our standard terms and conditions and authorized payment when the order is placed.

Credit cards were charged at the time of shipment.

For subscription arrangements, consumers signed up to receive products on a periodic basis.

Subscriptions were cancellable at any time without penalty, and no amounts were collected from the consumer until products were shipped.

Revenue was recognized when transfer of control to the consumer took place, which is when the product was delivered to the carrier.

Sales taxes collected from consumers were accounted for on a net basis and were excluded from revenue.

Consumers could also purchase gift cards, which were recorded as deferred revenue at the time of purchase.

We recognized revenue when these gift cards were redeemed for products and the revenue recognition criteria as described above have been met.

Effective December 31, 2025, we no longer offer gift card purchases on our website.

As such, as of December 31, 2025, the Company accrued for the reimbursement of gift cards to consumers and wrote-off $1.1 million of deferred revenue related to direct-to-consumer gift card purchases.

Sales Returns and Allowances

For direct-to-consumer, retail and third-party ecommerce sales, we record estimated sales returns in the same period that the related revenue is recorded.

We use the expected value method to estimate returns, taking into consideration assumptions of demand based on historical data and historical returns rates.

When estimating returns, we also consider future business initiatives and relevant anticipated future events.

Estimated sales returns and ultimate losses may vary from actual results, which could be material to the consolidated financial statements.

The estimated sales returns allowance is recorded as a reduction in revenue.

For direct-to-consumer, retail and third-party ecommerce sales, we offer credits in the form of discounts, which are recorded as reductions in revenue and are allocated to products on a relative basis based on their respective standalone selling price.

Our current retail and third-party ecommerce customers typically do not have the right of return;

therefore, no estimate is made for sale returns.

Prior to December 31, 2025, we recorded returns as incurred for direct-to-consumer customers, as the amount has historically been immaterial.

Any sales returns allowance is recorded as a reduction in revenue.

As part of exiting Honest.com as a fulfillment center, all direct-to-consumer sales were final as of December 31, 2025, with no right of return.

For retail and third-party ecommerce (and prior to December 31, 2025, for direct-to-consumer sales), we offer credits in the form of discounts, which are recorded as reductions in revenue and are allocated to products on a relative basis based on their respective standalone selling price.

For retail and third-party ecommerce sales, we routinely commit to one-time or ongoing sales incentive programs that may require us to estimate and accrue the expected costs of such programs, including trade promotion activities and contractual allowances.

We record these programs as a reduction to revenue unless we receive a distinct benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the benefit received, in which case we record the programs as marketing expense.

We recognize a liability or a reduction to accounts receivable, and reduce revenue based on the estimated amount of credits that will be claimed by customers.

We recognize a liability or a reduction to accounts receivable, and reduce revenue based on the estimated

amount of credits that will be claimed by customers.

An allowance is recorded as a reduction to accounts receivable if the customer can deduct the program amount from the outstanding invoice.

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As a result of the accounting standards election, we are not subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies which may make comparison of our financials to those of other public companies more difficult.

We will no longer qualify as an emerging growth company as of December 31, 2026, or earlier if certain conditions exist.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis